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‘Moderate growth’ quarter

P&A segment: Expect volume growth to moderate

India’s Alcohol & Beverage segment (Alcobev) has seen good volume growth in the Prestige & Above (P&A) vertical, but we expect some moderation in Q4. Raw material prices remain stable, especially for glass, packaging material and barley with improvement in grain prices but ENA (extra neutral alcohol) prices are volatile. Expect subdued P&A volume growth of 3% YoY for UNSP due to high base impact of BII/BIO supplies and intensifying competition (ABD’s Iconiq and other brands in lower prestige segment marring growth of McDowells No. 1).

Expect P&A to see net realisation growth of 5.5% YoY for UNSP due to better product mix (higher tilt towards scotch portfolio). P&A volume growth for RDCK may moderate to 15% YoY (22.6% YoY volume growth in 9MFY24) due to policy-related challenges in various states. Net realisation per case for P&A may grow 3% YoY on better product mix.

Profitability-wise, gross margin may be stable QoQ for both UNSP and RDCK. UNSP may post an EBITDA margin of 15% (drop of 146bps QoQ) due to higher A&P spends (11.2% of revenue in Q4E), and RDCK may post an EBITDA margin of 12.5% (20bps higher QoQ). Expect higher EBITDA margin for RDCK from Q1FY25E due to lower grain prices, which may lead to lower production cost for ENA (RDCK’ backward integration).

Online BPC growth slightly sub-par

Expect FSN E-Commerce (NYKAA IN) to report an overall revenue of INR 15.6bn in Q4FY24E, up 19.8% YoY. GMV (gross merchandise value) of beauty personal care (BPC) and fashion segments may grow 22% YoY and 30% YoY, respectively, and revenue may rise 17.1% YoY and 39.8% YoY, respectively, in Q4FY24E. We expect growth in the BPC segment to moderate, due to higher competitive intensity from quick commerce companies and competitive intensity in the online BPC space.

The online fashion business may see lower growth rates than the historical averages (GMV growth of 46.7% YoY in FY23), due to increased focus on profitability. Overall EBITDA margin may be stable at 5.6%, up 10bps QoQ, due to lower advertising revenue and other levers such as fulfillment costs largely peaking out. The BPC segment’s margin is expected to remain stable QoQ at ~12-13%. A higher share of private labels and premiumization too would bolster overall margin.

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